Bats Global Markets (formerly an acronym for Better Alternative Trading System) is a second-generation electronic communication network (ECN) founded in June 2005 by David Cummings, owner of Tradebot Systems in Kansas City.[1][2][3] Bats launched trading on Jan. 27, 2006 and quickly became the third-largest U.S. equities market by volume, grabbing 10 percent of United States equities markets two years after it opened.[4][5] It is currently (as of February 2017) the #1 stock market in Europe and the #2 stock market in the U.S.

Bats was acquired by Cboe Holdings on February 28, 2017 for $3.4 billion after Bats shareholders approved the merger agreement in January.[6][7] Bats Chief Executive Chris Concannon is the president and chief operating officer of the combined company.[8]

Bats Global Markets operates 11 markets globally. Its two U.S. stock exchanges, the BZX Exchange and the BYX Exchange, together process about 19 percent of all U.S. equity trading daily, and their European exchange, Bats Europe, processes about 22 percent of that market.[9] It also operates two U.S. options exchanges, Bats Options and EDGX Options.[10] Bats is based in Kansas City, Mo. and has additional offices in New York and London. Included in the BATS customer base are more than 270 broker-dealers and a broad-based ownership group of financial companies. It is owned by 13 Wall Street banks and electronic trading firms.[11]

Bats successfully launched an IPO on April 15, 2016. Shares traded at $22.78 at midday, up 20 percent, giving Bats a market value of $2.2 billion. Bats had attempted to go public once before but had to withdraw that bid after a technology glitch caused the bottom to fall out of its stock.[18][19]

History

BATS was founded in 2005 by David Cummings and 12 associates, including current Chairman Joe Ratterman, as an electronic communications network (ECN) in a North Kansas City storefront. At that time it was largely composed of software engineers and was immediately an advocate for competition, working closely with customers and other industry participants.

BATS voluntarily withdrew its version of a flash order type in response to controversy and the threat of potential regulatory intervention in August 2009.

BATS launched its first U.S. equity options exchange, BATS Options on February 26, 2010 with the first transaction taking place based on an Apple contract (APPL). The company targeted a 4-percent market share in U.S. options for 2010.

In November of 2011, Bats Europe was formed as BATS Chi-X Europe when the two leading pan-European multilateral trading facilities, BATS Trading Europe and Chi-X Europe, combined.[23]

However, BATS withdrew its IPO on March 25, 2012, the same day as its attempted launch, after a technical glitch caused the bottom to fall out of its stock. The glitch affected other stocks trading on BATS as well, including Apple.[26] BATS CEO Joe Ratterman apologized for the incident in a letter to customers.[27][28] On March 28, 2012, Ratterman was stripped of his chairman title.[29]

The exchange made a second attempt at an IPO in December of 2015, before its final successful IPO in 2016.[30]

On Jan. 9, 2013, BATS told investors that computers for its two equity exchanges and one options platform allowed some trades over a period of more than four years to take place at prices inferior to the best available bid or offer, a violation of SEC regulations. [31] The problem involved about 450,000 transactions and resulted in a loss to customers of $420,360.57, the company said.[32][33]

In July 2014 BATS became the world’s largest stock exchange operator for the first time, with market shares of 20.3 percent in U.S. equities and 21.5 percent in European equities.[36]

William O'Brien left BATS in July of 2014 after serving as president after the merger with Direct Edge. In August 2014 BATS entered into negotiations with U.S. regulators to settle accusations that Direct Edge gave unfair advantages to high-frequency traders. The talks came two years after the SEC began an inquiry into certain types of high frequency trading and whether they were disadvantageous to other investors.[37] O'Brien had sparred on CNBC with Michael Lewis, the author of the book "Flash Boys," which criticized firms like BATS for using high frequency trading technology.[38]

In January of 2015 BATS agreed to pay a record $14 million fine to the U.S. Securities and Exchange Commission to settle the allegations involving Direct Edge. The SEC contended that Direct Edge didn’t accurately disclose its order types.[39][40]

Also in January of 2015, KCG Holdings Inc. agreed to sell its institutional foreign-exchange-trading business, KCG Hotspot, to BATS for $365 million in cash.[41]

On January 21, 2015, BATS Trading filed a petition with the SEC to introduce regulatory reform that would: 1. Reduce potentially excessive incentives to provide liquidity in the most active securities and 2. Empower institutional and retail investors by providing them with more and better quality information about how their orders are handled.[42] On May 5, 2015, the Securities Industry and Financial Markets Association (SIFMA) backed BATS' proposal, saying the suggested reforms would improve market transparency.[43]

BATS launched its second options exchanged, EDGX Options in November of 2015.[44][45] Unlike the company's BZX Options market, which trades based on a price-time trading model with maker-taker pricing, EDGX Options uses a customer priority/pro rata allocation model, which prioritizes orders based on price and size. EDGX is designed to compete with options exchanges run by Nasdaq OMX Group and International Securities Exchange with a similar pricing model.[46]

On October 1, 2015, BATS launched the BATS ETF Marketplace, which pays ETF providers as much as $400,000 a year to list on BATS. Payments vary depending on average daily volume.[47]

In March 2016 Bats agreed to acquire ETF.com, a provider of ETF data, news and analysis.[48]

Bats went public on April 15, 2016.

In August of 2016, Bats acquired Javelin SEF LLC, a swaps exchange, to enhance its foreign exchange trading operations. Bats said it the deal would speed up its plans to offer non-deliverable forwards (NDFs) for the FX market, which allow investors to hedge their exposure to restricted foreign currencies against freely traded currencies.[49]

Technology

In February of 2014 BATS selected Equinix as the primary data center provider for all of its exchange platforms. [50]

On June 30, 2014 BATS Global Markets unveiled BATS One Feed, a product that provides market participants real-time market data across all four equity exchanges operated by BATS. One Feed will be available starting Aug. 1, 2014, pending a filing with the Securities and Exchange Commission.[51]

Awards

BATS Global Markets was named “Best Exchange Technology” at the 2014 Market’s Choice Awards, as voted by industry participants and the editors of Markets Media magazine, for the second consecutive year. [52]